DMart stock poor show may continue, but there're triggers to reverse it too

DMart's 15.4% revenue growth in Q2FY26 masks margin pressure and rising costs, but analysts see long-term upside from its North India push and network expansion

DMart's pre-quarter update for the second quarter of 2025-26 (Q2FY26) disappointed the market but several analysts continued to issue “Buy” recommendations. Revenue grew by 15.4 per cent year-on-year (Y-o-Y), led by 55 net store additions Y-o-Y, taking the total to 432 stores. Profitability is likely to be subdued due to elevated operating costs, and competitive intensity. DMart opened net eight new stores during the quarter (net 17 stores added in the first half of the financial year, or H1FY26), with one store temporarily closed for reconstruction.

 

The foray into UP and North India provides headroom for aggressive expansion but its return on capital employed (RoCE) in the near term will be low due to aggressive expansion. The company targets 10-15 per cent growth in stores Y-o-Y, which implies 70-80 stores could be added in FY26 versus 50 stores in FY25.

 

Profitability at gross margin level has been largely stable in the band of 14-14.5 per cent during FY21-FY25. However, Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin has seen high volatility due to higher operating expenses to ensure better customer experience and servicing. Operating expenditure (Opex) as percentage of sales has moved to 6.3 per cent in FY25 from 5.7 per cent in FY23. Elevated Opex will continue as DMart invests in employee base and store expansion, and Ebitda margin may be flat Y-o-Y at 7.9 per cent. 

 

The management said that inflation in real estate has also impacted RoCE, which dropped 130 basis points (bps) Y-o-Y to 17.6 per cent. During FY25, DMart reported negative free cash flow of ₹750 crore, with ₹3,300 crore capital expenditure (capex). As such, valuations may downgrade since DMart’s performance will improve only on a turnaround in sales of superior-margin general merchandise & apparel, recovery in mature stores and same store sales growth (SSSG), and fighting off competition from online.

 

Standalone revenue at ₹16,200 crore grew 15.4 per cent Y-o-Y in Q2FY26 (on a weak base of 14 per cent Y-o-Y in Q2FY25), with 13 per cent Y-o-Y store addition and likely mid-single-digit SSSG. Annualised revenue per store grew by 1 per cent Y-o-Y to ₹152 crore versus over 2 per cent Y-o-Y growth in Q1FY26. 

 

The company also operates in the online and multi-channel grocery retail segment under the brand D-Mart Ready. D-Mart had consistently delivered 17-20 per cent compound annual growth rate (CAGR) revenue growth over the past, driven by expansion in its network and retail space. The expansion opening up North India will strengthen the company’s competitive position, and yield long-term benefits. The management says the company has maintained its overall gross and Ebitda margins at 15 per cent and 7-8 per cent, respectively, as it had over the past several quarters. The management sees potential for 1,800+ store additions over a longer period.

 

Neville Noronha continues as the chief executive officer (CEO) till January 2026, with a focus on real estate, project execution, scaling the staples portfolio, and executing expansion in the North. CEO-designate Anshul Asawa signals strategic continuity.

 

Overall, improving consumer demand, supported by stable macroeconomics and a strong festive outlook in H2FY26, may drive growth in high-margin general merchandise & apparel. Reductions in the goods and services tax (GST) rate would spur consumption, and indirectly support discretionary spending.

 

But rapid proliferation of online grocery in metro cities is impacting DMart’s high-turnover metro stores, and this may weigh on near-term SSSG momentum. Uncertainty regarding quick commerce (qcom) impact will also weigh on stock valuations until clarity of SSSG trajectory emerges.

 

The dip in growth rates and margin pressures will probably result in share price underperformance for a while. But it remains a strong play in fast-growing organised retail with proven execution capabilities, focus and sensible approach to operating stores, and store expansion strategy. There could be an upside from higher-than-expected revenue contribution from general merchandise & apparel supporting margin, and fast scaleup of D-Mart Ready.